Do you need a salary to get a mortgage?
Real Estate Agent · Greater Philadelphia Area · Member since 2020 · 34 posts · 7 votes
My goal is to get my first property by the end of 2020. I would like to house-hack a multi-unit home and use an FHA loan, but unfortunately I just lost my job. Do you need a salary to qualify for a loan? What if you have the money down for a house but at the moment no definite income, are there ways to get around having a salary to get your first mortgage?
Good advice here already but some options haven't been addressed yet so here goes... As @Joe Splitrock and others have mentioned, the simple answer is to go back to work in the same field you were working in, hopefully quickly and in a higher paid position, and continue building a strong employment history in your area of expertise.
Some other options to consider:
1. Using a co-singer will increase your chances of qualifying greatly.
2. Use a partner. May not work for an FHA but you could look into buying a multifamily as part of a joint venture with a financial partner using a different loan product. Find a great deal as well as someone with capital who is interested in going in on it... voila'!
3. Ideally you'd have two years of consistent W2 income from the same company or at least in the same field, but for an FHA that's not always the case. Lenders are mostly looking for "income stability". The easiest way to check that box is with a salaried position for at least two years, but it's not always the only way. If there are gaps greater than 30 days they need to be explained such as you were in school or the military. Education level, training, and probability that you will remain employed in a lucrative line of work are also considered. It also helps if your income has been increasing year over year for as long as possible, as opposed to decreasing. Sometimes I believe even a letter if intent from a new employer also helps if you're starting a new job/ in between jobs.
4. A strong savings account. If you have significant savings (on top of the down payment amount obviously) or investments/assets that you can readily liquidate, a lender will be more likely to approve your loan application. Six months worth of reserves will definitely be a positive and the bigger your nest egg, the greater your chances at getting a loan. Obviously easier to do with a high paying job, but you know what they say about this paradox: banks love lending to people that don't need a loan ;)
5. A relationship with a lender (not the romantic kind!). If you haven't, I'd reach out to a great lender and start establishing rapport. A great lender will take the time to let you pick their brain and advise you on things you can do to work towards getting a loan in 6 months or a year. Stay in communication with them and do what they recommend. I like small local banks and credit unions the best personally.
6. Reduce debt, improve your credit score.
7. Reduce living expenses. Wealth comes not only from earning more, but from needing less!
8. Demonstrate a strong track record of consistently paying a rent amount equal to or greater than the monthly loan amount you're trying to qualify for. A letter from your landlord may help.
9. Dividend income from stocks. A stock portfolio that produces dividend income may help you qualify for a loan. Depending on the amount of dividend income and how it is taxed (for example if it is taxed as ordinary income), you may actually be able to qualify for a mortgage without any W2 or 1099 income. One of the reasons I like having stocks in addition to real estate is that much of my career has been in a field with seasonality in commission-based jobs but dividend income is very consistent. This may sound silly if you've just started investing and don't own any stocks as it will take a large portfolio to spin off enough dividend income to replace a typical salary, but something to think about anyway and perhaps work towards in the future even if not relevant to your current situation.
10. Invest in commercial property. Commercial lenders underwrite based on the operating costs vs. income from the asset itself more than personal income. Of course they will also require experience on behalf of the principle so this may not help your current situation just like #9, but something to think about as your career progresses and once you have some experience under your belt. You could also partner with someone with experience and/or capital on a JV commercial deal...
Hope that helps and good luck!
@Hannah Costello for an FHA loan you will need a salary or proof of business income. They are loaning you money so they want to know you have monthly income to pay the monthly payment.
The job market is on fire. Are you having trouble finding a job?
@Joe Splitrock do you know if there are any other type of loans, or methods to get around this? I am having a bit of trouble finding a job. I didn’t like my last job at all, so I am trying to find one that I will enjoy this time around.
Other types of loans? Could be. What experience do you have? What other income do you have from investments to prove you can make the payments? What cash do you have in the bank? Did you lose the job or did you quit because you didn't like it? Going to be tough for typical lending with none of the above and limited job history. Maybe focus on the job and then the lenders will come.
@Hannah Costello If you would like to qualify for a loan by the end of the year I would suggest that you find a job in the same industry, and you should be able to count that W2 income right away. If you move industries this may not be the case. After you get your loan closed would be the time to switch industries/careers. This will be a small sacrifice for a large reward of being able to get going on your first deal! Hope this helps!
You look to be a recent college grad (Seeing your profile photo). For an FHA they will consider schooling "work experience" so find a job related to what you went to school for and this would qualify you.
@Mike Wilkinson this helps very much, thank you!
@Dylan Mejo thank you for your help!
@Joe Splitrock do you know if there are any other type of loans, or methods to get around this? I am having a bit of trouble finding a job. I didn’t like my last job at all, so I am trying to find one that I will enjoy this time around.
Best advice I can give is find a job in your current profession, even if you don't like it. Then (while working) look for a better job that you will enjoy. You don't want gaps in employment and nobody is going to loan you money without a job.
Hey @Hannah Costello!
Sorry to hear about the loss of your job. It looks like the questions has been answered but there is light at the end of the tunnel.
I am not sure if anyone else talked about proving 2 years of stable income at the same job so unfortunately that looks like a long road ahead but there is hope!! A GREAT workaround is getting a job in the same position and industry as before.
I just closed on a FHA 203k loan and was employed at my current job for just about a year. The reason I was able to be approved is because my lender showed a track record of success from my previous position and employer. I was no longer seen at a risk.
I had a terrific lender that looked out for me. It’s all about relationships! Talk with your lender about your situation and good luck on the job and property search!
@Rinee John de Leon thank you for your help!
Good advice here already but some options haven't been addressed yet so here goes... As @Joe Splitrock and others have mentioned, the simple answer is to go back to work in the same field you were working in, hopefully quickly and in a higher paid position, and continue building a strong employment history in your area of expertise.
Some other options to consider:
1. Using a co-singer will increase your chances of qualifying greatly.
2. Use a partner. May not work for an FHA but you could look into buying a multifamily as part of a joint venture with a financial partner using a different loan product. Find a great deal as well as someone with capital who is interested in going in on it... voila'!
3. Ideally you'd have two years of consistent W2 income from the same company or at least in the same field, but for an FHA that's not always the case. Lenders are mostly looking for "income stability". The easiest way to check that box is with a salaried position for at least two years, but it's not always the only way. If there are gaps greater than 30 days they need to be explained such as you were in school or the military. Education level, training, and probability that you will remain employed in a lucrative line of work are also considered. It also helps if your income has been increasing year over year for as long as possible, as opposed to decreasing. Sometimes I believe even a letter if intent from a new employer also helps if you're starting a new job/ in between jobs.
4. A strong savings account. If you have significant savings (on top of the down payment amount obviously) or investments/assets that you can readily liquidate, a lender will be more likely to approve your loan application. Six months worth of reserves will definitely be a positive and the bigger your nest egg, the greater your chances at getting a loan. Obviously easier to do with a high paying job, but you know what they say about this paradox: banks love lending to people that don't need a loan ;)
5. A relationship with a lender (not the romantic kind!). If you haven't, I'd reach out to a great lender and start establishing rapport. A great lender will take the time to let you pick their brain and advise you on things you can do to work towards getting a loan in 6 months or a year. Stay in communication with them and do what they recommend. I like small local banks and credit unions the best personally.
6. Reduce debt, improve your credit score.
7. Reduce living expenses. Wealth comes not only from earning more, but from needing less!
8. Demonstrate a strong track record of consistently paying a rent amount equal to or greater than the monthly loan amount you're trying to qualify for. A letter from your landlord may help.
9. Dividend income from stocks. A stock portfolio that produces dividend income may help you qualify for a loan. Depending on the amount of dividend income and how it is taxed (for example if it is taxed as ordinary income), you may actually be able to qualify for a mortgage without any W2 or 1099 income. One of the reasons I like having stocks in addition to real estate is that much of my career has been in a field with seasonality in commission-based jobs but dividend income is very consistent. This may sound silly if you've just started investing and don't own any stocks as it will take a large portfolio to spin off enough dividend income to replace a typical salary, but something to think about anyway and perhaps work towards in the future even if not relevant to your current situation.
10. Invest in commercial property. Commercial lenders underwrite based on the operating costs vs. income from the asset itself more than personal income. Of course they will also require experience on behalf of the principle so this may not help your current situation just like #9, but something to think about as your career progresses and once you have some experience under your belt. You could also partner with someone with experience and/or capital on a JV commercial deal...
Hope that helps and good luck!
@Steve K. Hi Steve. Thank you for the great advice. I like your relationship building idea with the lender, I am going to work on that ASAP. Thank you very much for your help!
@Hannah Costello
Would you rent to a tenant if they didn't have a job?